Multimedia and Entertainment Law Online News

Film Law

January 05, 2010

The following is the second in a series of articles that will try and explain some of the pros and cons of entering into a licensing agreement in today’s entertainment industry.

There are any number of different types of licensing agreements that come across my desk in a typical work week.Some are short-form agreements, and others spell out every detail of the parties’ intentions over 50 pages or more. One thing they all have in common; boilerplate provisions.You know; the stuff that gets jammed into the last few pages of the license under the heading Miscellaneous.Well, I’m here to remind you that while they may not be the sexiest part of a license, boilerplate provisions can solidify a good license or create possible pitfalls in a bad one.

This week we focus on an important boilerplate provision known as the Indemnity Clause. An Indemnity or indemnification Clause is a provision in which one or both parties to the license agree to hold harmless the indemnified party from liability to a third party for loss or damage resulting from such liability.

As we discussed in Part 1, there is a trend in the entertainment industry toward licensing intellectual property rights.Music and motion pictures licensed for distribution would be an example.Inherent in the licensing of intellectual property is a fear on the part of the licensee that a third party’s rights may be violated by the licensor’s work.For example: Two musicians write a composition together and record a master of the song.Musician A, a rather shady character, licenses the exclusive right to distribute the master to Distributor.Distributor distributes the master and pays royalties and advances to Musician A.Meanwhile, Musician B, who owns all rights to the master, knows nothing about the agreement between Musician A and Distributor.When Musician B finds out about the agreement she sues both the Distributor and Musician A jointly and severally for copyright infringement and to recover monies earned under the license.

In the example, a solid indemnity clause in the agreement with Musician A would protect the Distributor from liability stemming from Musician B’s rights in the master.Without an indemnification Clause, or with a poorly worded and thus unenforceable Clause, Distributor might be liable to Musician B for big bucks!

A good Indemnification Clause starts with setting forth a clear intention to indemnify. You should start the clause by stating the intention of the parties to provide indemnity.Next, set forth the indemnitor and indemnitee.The indemnification may or may not be unilateral. If there is a third party involved in the indemnification (an insurance provider for instance), make sure they are included. The clause must state that the indemnitee need notify the indemnitor of a claim or lawsuit in a timely manner, and how long the indemnification will last.Will indemnity survive the termination of the license and for how long?Finally, always include a clear statement on the losses, damages and liabilities covered, including whether or not future losses are covered.

You cannot draft an Indemnification Clause without understanding what can and cannot be indemnified.First and foremost, the indemnification must be as against liability to a third party.Public policy dictates that an Indemnification Clause is not enforceable if it seeks to indemnify against illegal activity, wrongful acts or a breach of a fiduciary duty.In the example listed above, you might make an argument that the Distributor was negligent in not discovering Musician B.In some jurisdictions negligence might void the Indemnification Clause.Other jurisdictions make a distinction between active and passive negligence, allowing for indemnification if the negligence was passive. Arguably, the Distributor not discovering Musician B is passive negligence, if negligence at all. The important thing to remember is; if the Indemnification Clause is clear and knowingly bargained for, it is more likely to be enforceable even if it covers negligent acts.A simple way of making it apparent that the Indemnification Clause was knowingly bargained for is to put it under its own heading.Get it out of the Miscellaneous bin.

Once you’ve established a clear definition of whom and what is being indemnified, here are some other things to think about when drafting your clause.It’s implied that the indemnification covers legal costs and attorney’s fees, but it never hurts to make sure you expressly set forth langue covering those costs and fees.

A big issue revolves around the issue of consent to settle.If you are an indemnitor you want to make sure you have approval over any settlement that the indemnitee enters into.Going back to our example, imagine if Musician A had the legal right to enter into the agreement with the Distributor, but Musician B filed the lawsuit anyhow.Distributor could simply settle with Musician B to avoid the hassle, and send the bill to Musician A.Now, imagine if Musicians C, D, E & F also came forward and filed claims against the Distributor, who in turn settles with all of them.Ouch!On this same note, Indemnitors may also want to participate in the indemnitee’s defense, including selection or approval of the attorney.

Finally, you’re going to want to think about how the Indemnitee is going to be paid in the event of a lawsuit or settlement.Will the Indemnitee be able to withhold payment under the license in order to pay for the cost of defending? Back to the example; under their license, Distributor is paying a royalty to Musician A on the master Distributor is exploiting.Musician B sues, and Distributor notifies Musician A that it is seeking indemnity under the agreement, and will be withholding payment of royalties to pay for its legal defense. Here at BEAT-LAW, we’ve seen instances where the indemnification clause called for a bond to be established upon commencement of a lawsuit, or where the indemnitee is able to call for advance payment from the indemnitor to cover all legal fees.If you are the indemnitor, you’d prefer that no payment be made until after final adjudication of any claim or lawsuit. Whatever the parties agree upon, make sure your Indemnification Clause clearly covers this issue. Do not remain silent!

Next Month: We keep the boilerplate turned on, and explore what happens to your license if there’s a bankruptcy

October 28, 2009

The following is the
first in a series of articles that will try and explain some of the pros and
cons of entering into a licensing agreement in today’s entertainment
industry.

As the various business models of the entertainment industry
continue to reinvent themselves almost on a daily basis, one prevailing trend
is the growing use of licensing.More entertainment product is now
self-produced by artists than ever before.The “Studio System” and “Major Label” business models are quickly
becoming obsolete.It’s beyond the
scope of this article to make any grand sweeping speculation as to why the
industry models are changing.Are these
changes the result of the economy, backlash against the ‘old systems’, or
technology changes?The answer probably
lies somewhere in the murky gray area known as “a combination of all of the
above”.The point is that change is
here, and change means an influx in the use of licensing throughout the
entrainment industry as the shift continues toward independent production.

Take the music industry, for example.Under the old model, record labels hired
talent evaluators to find artists, signed those artists to a recording
contract, paid for the artist to record an album, created and distributed the
album, and then profited off the sale of the album.The label owned the copyright to master recordings that made up
the album, and shared in the copyright of the song publishing with the songwriter.The artist made money off of royalties paid
by the label (including their advance) based on sales of the album, and on
royalties paid to the songwriter by a performing rights organization
(ASCAP/BMI) for use of the song.

In short – if you buy, sell or trade creative services or works, and the very thought of negotiating a deal gives you a massive migraine, you need a simple way to organize the deal points in your mind.

January 22, 2008

Following up on "Writers' Strike Part 1," in which I discussed the basic "who" and "what" of the current strike by the WGA against the AMPTP - this article is geared toward giving some background information to understand where the current dispute comes from.

September 12, 2007

This Saturday, September 15th, is the 8th annual Expo for the Artist & Musician - an event offering networking, free workshops, performances, exhibits and other
services to the arts community and the public.

I will be on a panel with Trevor Stordahl from the Pranger Law Group
entitled "Intellectual Property and Creative Licensing." We will be
discussing licensing music for films, digital music distribution
(downloads
and streams), traditional music distribution, copyright basics,
trademarks
and parties that are implicated in music licensing.

the copyright registration certificate, if made within 5 years after the first publication of the copyrighted work, provides prima facie evidence (i.e. evidence that is sufficient unless rebutted) with respect to plaintiff's copyright ownership. The burden then shifts to the defendant to demonstrate why the copyright is not valid.